Trump’s sanctions on Iran may be creating an oil trading boom — in China

CNBC

  • Trade in Chinese yuan-denominated crude oil futures has jumped since President Donald Trump pulled the U.S. out of the Iran nuclear deal.
  • There is speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will spur demand for the Shanghai-listed derivatives.

A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Getty Images
A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Trade in Chinese yuan-denominated crude oil futures has surged since President Donald Trump pulled the U.S. out of the Iran nuclear deal.

Launched on March 26, crude oil futures on the Shanghai International Energy Exchange (INE) were met with fanfare — and skepticism about how much a state-managed marketplace could displace the well-established crude trade in the New York Mercantile Exchange’s West Texas Intermediate and the Intercontinental Exchange’s Brent futures.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off.”-BMI Research

But Trump’s move to reimpose sanctions on Iran may have spurred interest in the Chinese oil futures. Last Wednesday, daily trade volumes in INE oil futures hit a record of over 240,000 lots, double what they were on Tuesday when news of the renewed sanctions broke.

“There has been speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will boost demand for yuan-denominated Shanghai futures,” said BMI Research in a note on Monday. “With China deepening its energy ties with Iran and given Beijing’s desire both to support the contact and — relatedly — to further internationalize the use of its currency, payment in yuan and benchmarking against Shanghai futures would seem logical.”

Veteran oil trader John Driscoll told CNBC last week that Iranian traders have the option of trading in Chinese yuan-denominated crude oil futures on the Shanghai International Energy Exchange — circumventing any restrictions on dollar-denominated trade and U.S. banks.

Doubts about how long it will last

Even so, some industry watchers remain skeptical over the long-term impact Iran will have on the Chinese futures, as Iranian crude is not deliverable into the Shanghai oil contract.

Even so, interest in the Shanghai oil futures have surpassed expectations, with Chinese state-owned companies and foreign interests taking part in the trade.

At least one oil sales agreement has been signed with state-owned major Sinopec, Reuters reported.

“Concerns over heavy state dominance in the oil sector does not appear to be dampening participation in the contract, neither does its denomination in yuan and the added FX risks this brings,” said BMI, adding that the futures are gaining tracing.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off,” it added.

Oil prices rise as Saudi Arabia says production curbs could last into 2019

CNBC

  • Oil prices rose, pushed up by Saudi statements that OPEC and Russian led production curbs will need to be extended into 2019 in order to tighten the market.
  • The rise in oil prices defied global stock markets and other commodities, which slumped on worries about a trade stand-off between the U.S. and China.

An oil pump jack in Gonzales, Texas.

Getty Images
An oil pump jack in Gonzales, Texas.

Oil prices rose on Friday, pushed up by Saudi statements that OPEC and Russian led production curbs that were introduced in 2017 will need to be extended into 2019 in order to tighten the market.

The rise in oil prices defied global stock markets and other commodities, which slumped on the back of worries about a trade stand-off between the United States and China.

U.S. President Donald Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, while China unveiled plans on Friday to impose tariffs on up to $3 billion of U.S. imports.

U.S. West Texas Intermediate (WTI) crude futures were at $65.09 a barrel at 0045 GMT, up 79 cents, or 1.2 percent, from their previous close.

Brent crude futures were at $69.64 per barrel, up 73 cents, or 1.1 percent.

Traders said the driver for crude futures was a statement by Saudi Arabian Energy Minister Khalid al-Falih, who said on Thursday that OPEC members will need to continue coordinating with Russia and other non-OPEC oil-producing countries on supply curbs in 2019 to reduce global oil inventories.

The Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia is the de-facto leader, as well as a group of non-OPEC countries led by Russia, struck a production supply agreement in January 2017 to remove 1.8 million barrels per day (bpd) from global markets and end a supply glut.

The pact is set to expire at the end of this year, but Saudi Arabia now seems to be pushing for an extension.

“We know for sure that we still have some time to go before we bring inventories down to the level we consider normal and we will identify that by mid-year when we meet in Vienna,” Falih told Reuters in an interview in Washington.

“And then we will hopefully by year-end identify the mechanism by which we will work in 2019.”

Although analysts said the potential stand-off between the United States and China could also hit oil markets, for now most said demand looked healthy. Morgan Stanley also cited a pick-up in seasonal demand in the coming month and geopolitical risk as potential supports for oil prices,

“We are only 3-4 weeks away from peak refinery maintenance, after which crude and product demand should accelerate … Global inventories are already at the bottom end of the five-year range. With the inventory cushion largely gone, oil prices will likely be more sensitive to geopolitical risk factors,” the U.S. bank said.

“There are sufficient reasons to expect oil prices to strengthen further from here, and we stick with our (Brent) $75 per barrel call for Q3,” Morgan Stanley said.

Oil prices rise on surprise U.S. crude inventory draw

REUTERS

* Brent crude oil futures near $70 per barrel

* Ongoing OPEC-led supply restraint has been supporting oil

* Weak dollar also supports oil prices

* Soaring U.S. production tempers bullish mood somewhat

By Henning Gloystein

SINGAPORE, March 22 (Reuters) – Oil prices rose on Thursday, lifted by a surprise draw on U.S. crude inventories as well as ongoing dollar weakness which makes oil cheaper in global markets and potentially spurs demand.

U.S. West Texas Intermediate (WTI) crude futures were at $65.39 a barrel at 0021 GMT, up 22 cents, or 0.3 percent, from their previous close.

Brent crude futures were at $69.65 per barrel, up 18 cents, or 0.3 percent.

Both benchmarks are hovering just below their highest levels since early February, having risen around 10 percent from March lows.

Some support for crude futures came from currency markets, where the dollar fell as Federal Reserve officials stuck to their view of three rate increases for 2018, even as they delivered an expected quarter point rate hike.

In oil markets, U.S. crude inventories C-STK-T-EIA fell 2.6 million barrels in the week to March 16, to 428.31 million barrels, the Energy Information Administration (EIA) said late on Wednesday.

“Oil … had a big session overnight although this wasn’t just a function of the interest rate move. Inventory data for last week showed a surprise crude draw as well as significant drawdowns in both gasoline and distillates inventories,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

Further supporting oil prices has been supply restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, which started in 2017 and is scheduled to go on for the rest of 2018.

The overall bullish mood is being somewhat tempered by U.S. crude production C-OUT-T-EIA, which climbed to a fresh record of 10.4 million barrels per day (bpd) last week, putting the United States ahead of top exporter Saudi Arabia and within reach of Russia’s 11 million bpd.

Reporting by Henning Gloystein; editing by Richard Pullin

Oil prices rise as US President Trump set to meet North Korea’s Kim

CNBC

  • Crude oil futures rose on Friday.
  • Asian stock markets gained on news that North Korean leader Kim Jong Un will meet with U.S. President Donald Trump.
  • Beside geopolitics, oil markets were mainly concerned with soaring output from the United States.

Oil jack pumps in the Kern River oil field in Bakersfield, California.

Jonathan Alcorn | Reuters
Oil jack pumps in the Kern River oil field in Bakersfield, California.

Crude oil futures rose on Friday as Asian stock markets gained on news that North Korean leader Kim Jong Un will meet with U.S. President Donald Trump.

The two will likely meet by May and Kim has pledged to refrain from further nuclear or missile tests, South Korea’s national security chief said late on Thursday after briefing White House officials on talks between Seoul and Pyongyang.

The White House said Trump would accept the invitation at a place and time to be determined.

The news lifted Asian stocks markets, and pulled crude oil futures along with them, traders said.

Brent crude futures were at $63.95 per barrel at 0102 GMT, up 34 cents, or 0.5 percent, from their previous close.

U.S. West Texas Intermediate (WTI) crude futures were at $60.39 a barrel, up 27 cents, or 0.45 percent. WTI also fell by more than 2 percent the previous session.

Beyond geopolitics, oil markets were mainly concerned with soaring output from the United States, which has risen by 23 percent since mid-2016, to 10.37 million barrels per day (bpd).

That’s more than top exporter Saudi Arabia produces. Only Russia pumps more, at almost 11 million bpd.

“It seems only a matter of time before the U.S. becomes the biggest oil producer in the world. The main question which keeps investors busy is when exactly this will be reached,” Hans van Cleef, senior energy economist at Dutch bank ABN Amro, said in a note to investors.

Crude oil falls, hits one week low

Crude oil falls, hits one week low  

Unlike Middle East producers, where output is largely dictated by state-owned oil companies, U.S. producers drill and sell purely based on economics. If prices remain at current levels or rise further, U.S. drillers are profitable and will raise output; if prices stumble, U.S. production will fall.

“The correlation between the U.S. oil production and the oil prices will remain considerable,” van Cleef said.

As much as on production, oil prices will depend on demand.

“Global demand will continue to grow by 1.5 million barrels per day in both 2018 and 2019. This would offer enough room for U.S. oil producers to increase production and for OPEC and her allies to minimalize the production cuts towards the end of 2019,” van Cleef said.

The Middle East-dominated Organization of the Petroleum Exporting Countries(OPEC) and Russia since 2017 have been leading an effort to withhold production to prop up prices.

Oil steadies after big fall, but soaring US crude output still weighs

CNBC

  • Oil prices steadied on Thursday after falling the previous day on the back of record U.S. crude production and rising inventories.

An oil pumpjack operates near Williston, North Dakota.

Andrew Cullen | Reuters
An oil pumpjack operates near Williston, North Dakota.

Oil prices steadied on Thursday after falling the previous day on the back of record U.S. crude production and rising inventories.

Brent crude futures were at $64.49 per barrel at 0100 GMT, up 15 cents, or 0.2 percent, from their previous close. That slight rise came after a more than 2 percent fall the previous day.

U.S. West Texas Intermediate (WTI) crude futures were at $61.29 a barrel, up 14 cents, or 0.2 percent. WTI also fell by more than 2 percent the previous session.

The slight recovery on Thursday came amid a U.S. crude inventory build that was not as big as expected during the current seasonal demand lull at the end of winter, when many oil refineries shut down for maintenance.

“Oil prices bounced back immediately after the release of the weekly oil inventories data from the Energy Information Administration … (where) the headline figure was better than expected,”said Fawad Razaqzada, market analyst at futures brokerage Forex.com.

The EIA reported late on Wednesday that U.S. crude inventories rose by 2.4 million barrels in the week to March 2, to 425.91 million barrels, less than the 2.7 million barrel increase analysts had forecast.

Despite this, oil markets remain under pressure from the seasonal trend of rising inventories, which in the United States have climbed back above the 5-year average of 420 million barrels.

Also looming over oil markets is soaring U.S. production, which last week marked another record, at 10.37 million barrels per day (bpd).

“Crude is … under pressure from rising U.S. production which hit a new high last week, now firmly above Saudi Arabia’s production level,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

At just below 11 million bpd, only Russia currently produces more crude oil than the United States, although the International Energy Agency (IEA) expects even this to change as the United States is set to surge past 11 million bpd by late 2018.

With U.S. output outpacing demand growth, analysts say the Organization of the Petroleum Exporting Countries (OPEC) and Russia, who together with some other producers have been withholding production in order to prop up prices, are under pressure to keep up the supply restraint, even at the cost of market share.

“OPEC may … have to extend its production agreement with Russia and co in order to avoid triggering another 2014-style sell-off in oil prices,” said Razaqzada.

Energy shares in Asia climb as oil prices hold onto gains following US inventory decline

CNBC

  • Energy stocks in Asia traded higher on Friday.
  • Oil prices touched a two-week high in the last session after data from the U.S. Energy Information Administration showed U.S. crude stocks unexpectedly declined.
  • The S&P/ASX 200 energy sub-index was up 0.68 percent. Gains were also seen in oil-related stocks listed in Japan and Australia.
Pump jacks and wells are seen in an oil field on the Monterey Shale formation, March 23, 2014, near McKittrick, Calif.

Getty Images
Pump jacks and wells are seen in an oil field on the Monterey Shale formation, March 23, 2014, near McKittrick, Calif.

Oil-related stocks in Asia traded higher on Friday as oil prices recorded slight gains after touching two-week highs in the previous session.

Those gains in oil prices had come after U.S. crude stocks unexpectedly declined by 1.6 million barrels in the week ending Feb. 16, Reuters said, citing data from the U.S. Energy Information Administration. That compared to the 1.8 million-barrel rise in inventories forecast by experts.

Woodside Petroleum, Australia’s largest oil and gas company, was up 0.56 percent following those increases in prices. Other oil producers also gained: Santos rose 0.39 percent and Oil Search rose 1.46 percent.

More broadly, the S&P/ASX 200 energy sub-index traded higher by 0.68 percent in the afternoon Sydney time.

Energy stocks in Japan saw sharper gains, with oil producer Inpextrading higher by 2.55 percent and Cosmo Energy gaining 4.59 percent. JXTG Holdings, Japan’s largest refiner, was up 3.58 percent.

Meanwhile, Hong Kong-listed shares of Chinese oil producer CNOOCrose 0.88 percent in late morning trade local time. Oil giant China Petroleum and Chemical Corporation, or Sinopec, added 1.11 percent.

Oil prices were mostly steady on Friday. U.S. West Texas Intermediate crude futures advanced 0.05 percent to trade at $62.80 per barrel and Brent crude futures were off by 0.02 percent at $66.38.

“The unexpected fall in oil inventories in the U.S. should see support for crude oil prices remain strong,” said ANZ Research analysts in a Friday morning note.

“Prices were also supported by comments from UAE Energy Minister Suhail Al Mazrouei, who said the worry is undersupply, not oversupply, as demand remains strong amid the constraints on output,” they added.

Crude oil inventories down 1.6 million barrels

Crude oil inventories down 1.6 million barrels  

Oil falls as stronger dollar eclipses US inventory drop

CNBC

  • Stronger dollar makes oil costlier for some buyers
  • API report showed lower U.S. crude inventories

Oil pumpjacks in silhouette at sunset.

Oil pumpjacks in silhouette at sunset.

Oil prices fell on Thursday, dragged lower by a firmer dollar that offset support from a surprise decline in U.S. crude inventories.

Brent crude futures were down 28 cents at $65.14 a barrel by 1007 GMT, while West Texas Intermediate (WTI) futures dropped 37 cents to $61.31 a barrel.

The dollar rose to a one-week high against a basket of major currencies on Thursday, after minutes of the Federal Reserve‘s January meeting showed policymakers were more confident of the need to keep raising interest rates.

With the strengthening dollar, the oil price has lost nearly 10 percent since hitting a multi-year high above $70 in January.

RBC:  Two offsetting stories at play in the oil market this year

RBC: Two offsetting stories at play in the oil market this year  

“Given the market’s whipsaw reaction we could add another key takeaway, that recent heightened market volatility could be here to stay,” LCG markets strategist Jasper Lawler said.

The correlation between moves in the oil price and the dollar has strengthened in the last couple of weeks, as investors increasingly sell other assets to buy the U.S. currency on expectations of a faster pace of rate rises.

“The firming dollar continues to thwart investor sentiment despite the bullish inventory data,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA.

A stronger dollar pushes up the bill for countries paying for imports in other currencies, potentially curbing demand.

The American Petroleum Institute on Wednesday reported an unexpected drop in U.S. crude oil inventories by 907,000 barrels to 420.3 million barrels for the week to Feb. 16.

Geopolitical risk has heightened as a factor in crude oil prices

Geopolitical risk has heightened as a factor in crude oil prices  

Inventories usually rise at this time of year, as many refineries cut crude intake to conduct maintenance, but a bottleneck in Canada’s pipeline system has reduced U.S. imports and pushed U.S. stocks lower.

“Improved pipeline infrastructure to the Gulf coast and the decreased supply via TransCanada’s Keystone pipeline, sent … inventories tumbling,” Innes said.

But analysts said oil markets were still generally well supported due to rising demand for crude and production restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

“OPEC production curbs have stabilized the market. Adherence to (the) agreement has been relatively good,” Daniel Hynes, senior commodity strategist at ANZ bank, said in a report on Thursday.